GST Council decides on four-tier tax rate structure; aam aadmi items to be taxed at 5%

The Goods and Services Tax (GST) Council has decided on a four-tier rate structure of 5%, 12%, 18% and 28%.

GST has long been touted as one of independent India’s most crucial indirect tax reforms. (File PTI photo)

The Goods and Services Tax (GST) Council has decided on a four-tier rate structure of 5%, 12%, 18% and 28%. According to Finance Minister Arun Jaitley, the two items that were discussed by the GST Council were rate structure and compensation formula, and cross empowerment.

“Broadly under the new rate structure, the aam aadmi items will be taxed at a rate of 5%,” Jaitley said. “50% of the items that come under the consumer price index basket will have zero tax on them. 5% duty will be for items of mass consumption. Standard rates of 12% and 18% will be applicable on other items,” Jaitley said, adding that the GST cess will not put additional burden on consumers.

The highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty + VAT). Luxury cars, tobacco and aerated drinks would also be levied with an additional cess on top of the highest tax rate.

According to Jaitley all GST decisions were taken by consensus except for the 28% slab. GST rates for gold will be decided after seeing revenue implications, he said. Finance Minister Arun Jaitley will seek parliamentary approval for bills later this month that would set the rate and scope of the GST. State assemblies must also to approve similar bills for the tax to enter force as planned next April 1.

Commenting on the rate structure, Chief Economic Adviser Arvind Subramanian has said that it has been designed in a way that will protect people at the lower-end. GST rate structure will be more than revenue neutral, he has said.

GST has long been touted as one of independent India’s most crucial indirect tax reforms. The long-delayed tax is expected to boost revenues through better compliance. The simpler tax structure would also imply that it would be easier to do business in India. The tax brackets that have been decided are steeper than the rates of 6, 12, 18 and 26 per cent earlier proposed by the government. Earlier this year, the Parliament had passed the landmark GST Bill, after it had been stalled by various parties over the course of many years. GST is expected to add greatly to India’s GDP growth.